For example, the increase in total expenses is explained by the rebound in projected interest payments; and the fall in capital spending is explained by an increase of almost the same magnitude in current transfers. This reflects a great reality: there is not much room to lower government spending.
When the government talks about savings, it is actually referring to spending reassignments (one is taken away and another is put in). And these add up to about 16 billion pesos in the budget presented, an amount that is far from the more than 100 billion that some believe it is feasible to achieve.
Spending reallocation is the initial step that can help improve your efficiency, but it is not as big as previously thought, due to the rigidity of spending, nor is it a savings that will improve aggregate accounts. Although it is a necessary step to eliminate duplication, waste and superfluous expenses.
In defense of the current administration, it is fair to say that the time elapsed between the inauguration and the budget presentation date is only a few weeks and the Government fully complied with the deadlines stipulated in the legal framework. This budget can be considered as a transitional budget, made in the rush due to the urgency of deadlines and it is from next year that we will see the budgetary policy of the new authorities better reflected when they present a budget prepared with more time.
It is interesting to note that a large number of previously criticized budgeting practices have been replicated in the 2021 Budget. This reflects, in my view, that governments are doing what they can with insufficient resources. And this is what the new government has tried to do, which is loaded with good intentions to do things well, but is faced with strong structural restrictions and a situation that is almost impossible to handle.
But this implies that it will be more difficult to criticize the previous government for budgeting practices that the PRM team considered illegal or incorrect, since it replicated many of them. And this reflects a great reality: Budgeting is the art of the possible.
To achieve the reduction of the deficit from 9.3 this year to 3% of GDP in 2021, the Government initially proposed a combination of reducing expenses, selling assets and new tax figures. But the latter barely represented 10% of the total adjustment announced for 2021. Why assume such a high political cost for measures that did not represent much? It is something that has not been understood. Although it has already been rectified and replaced by tax advances negotiated with the banking sector and Barrick Gold, measures that give temporary relief to the treasury in what the Fiscal Pact is negotiated.
In normal times, asking for tax advances is considered a very bad practice. But these are not normal times. What the Government must do is explain well the financial conditions of these negotiations.
On the other hand, the reduction of the deficit by more than 6 points of GDP from one year to the next is unprecedented in the recent economic history of the country and the probabilities of non-compliance are high. In any case, the investors who will finance the Budget with the purchase of bonds value more that a politically and economically realistic reduction of the deficit occurs, rather than one that cannot be fulfilled.
In this context of crisis, the Government will receive the support of all sectors if it decides to increase the projected deficit. In addition, it will be more credible to set a less ambitious deficit reduction goal and give hope to social sectors that fear the termination in December of temporary aid programs.
Of course, all of this is much easier said than done. A higher deficit implies additional debt that will have to be paid in the future through more tax burden. And at that time, many of those who ask for more spending today will pull the rug out of the Government, which will require all the support not only now, but when the time comes to pay back what has been borrowed.
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